AUD GBP Exchange Rate Slump Triggered by Lower Rate Hike Chances

Traders have largely abandoned the Australian Dollar today, which has led to a -0.5% slide against the Pound. This sudden drop in confidence was triggered by a speech from Reserve Bank of Australia (RBA) Governor Philip Lowe.

Speaking in Sydney, Lowe emphasised that the RBA did not feel tied to other global central banks when it came to monetary policy;

‘The RBA did not move in lockstep with other central banks when monetary stimulus was being delivered and we don’t need to move in lockstep as some of this stimulus is removed’.

Essentially, this meant that the RBA would follow a course of interest rate hikes on its own terms, rather than feeling pressurised into hiking ahead of time.

In a similar vein, Lowe indirectly showed that there were slim chances of further interest cuts in the near-term;

'[Previously,] central banks lowered their interest rates to zero and also expanded their balance sheets greatly. We did not go down this route’.

Providing a clear indicator of when the RBA could start increasing national interest rates, Lowe pointed to the jobs market;

‘Rates clearly aren’t rising until the RBA is confident that wages growth and inflation are lifting’.

This news all dragged on the Australian Dollar, but despite the decline it still remained near the best rate against the Pound since March 2016.

AUD traders will be watching the US for the next source of movement, which will be July’s Federal Reserve interest rate decision. The Fed is expected to return to its holding pattern and leave interest rates at 1.25% this evening.

The Australian Dollar may still take heavy losses, however, if Fed officials point to a possible third interest rate hike in 2017. Such news could bump up US Dollar demand, pushing the Australian Dollar down in the process.

The Pound has gradually gained on the Australian Dollar today, despite mixed reactions to UK Q2 GDP. As predicted, annual GDP shifted from 2% to 1.7%, but the quarterly figure increased from 0.2% to 0.3%.

Tapping into the Brexit issue that has supposedly affected GDP growth, Chancellor Philip Hammond said;

‘There is a degree of uncertainty around the UK economy in particular because businesses and consumers are looking for clarity about what our future relationship with the European Union will be. That’s why we attach importance to as early as possible agreeing what the interim arrangements will look like as we leave the European Union in March 2019 and move to a long term different kind of arrangement with the EU. The earlier we can get agreement on transitional arrangements the greater clarity business and consumers will have. So that’s definitely the first port of call…in removing some of this uncertainty’.

The Pound could see a reversal of fortunes on Friday, when July’s consumer confidence figure is announced. Calculated by GfK, the confidence measure is expected to show a slight decline from -10 points to -11; a -11 printing would be nearly the lowest result in a year for the measure.